TNAG-0543-FCO40-638-Strength-of-garrison-in-Hong-Kong-1975 — Page 201

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YDENTIAL

HAL

HONG KONG DEFENCE COSTS NEGOTIATIONS OCTOBER 1975

WORKS MATTERS

BRIEF J

Provision of Present Agreement

1. The agreement concluded for the period 1971 - 1976 was largely works-orientated.

This was very much on the advice of the then Governor who considered that the

Hong Kong Government would find a contribution geared to real estate (in which they

thereby acquired a reversionary interest) easier to justify than a straight cash

contribution.

2.

Thus out of the contribution of £40M (specified in Sterling) originally envisaged

for the 5-year agreement period:-

a.

£17M related to capital works (or cash in lieu provided that failure

to meet this level of expenditure could be laid at the door of the Hong

Kong Government).

b.

full maintenance of existing real estate. This activity contributed

in kind was valued at £11M (nominally £2.21 per annum).

3.

These provisions were subject to review if costs. rose by 50% in the running

time of the Agreement.

Implementation of Present Agreement

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4. Once we had acceded to a substantial part of the present contribution being

tied up in capital works, it was necessary to ensure that a programme (which would

not have been carried out until later had it had to be Sterling funded) was

accelerated in order to make full use of this resource.

5. It became clear early in 1974 that the initial problem of ensuring that the

money was fully spent had given way to the probability of overspend through a